Investigating what the UK can learn from the French model of healthcare funding November 2018 Thomas Mills The UK is reaching a healthcare funding crisis. The population is ageing and there is strong demand for a process of modernisation.1 But the finances to ameliorate these problems are not available. The UK funding model cannot keep up with the financial demands of quality universal healthcare.2 Yet the system remains without serious proposals for reform. This report seeks to understand the ways in which healthcare in the UK is failing and how the method of funding may be responsible. The weaknesses of the oft-referenced US model should not stand as confirmation of the pre- eminence of the government-controlled system. The shortcomings of the American structure should serve only as a warning against shifting the majority of funding responsibility to the private sector. This comparison obscures the fact that an abundance of European nations have rejected the notion that universal healthcare must be funded through taxation. A significant number of countries with universal healthcare avoid using direct, unhypothecated taxation as their core funding mechanism. This includes Germany, Switzerland, the Netherlands and France. And given its similarities to the UK in foundational principles and domestic appreciation for the respective system, as well as its relative strengths, France shall be the nation under review. After exploring the key mechanisms, analysis will turn to the merits and drawbacks of the model. This will aid in assessing whether elements of the French healthcare funding system are suitable and effective enough to implement in the UK. A discussion about funding does not require a change of priorities. It means considering that financing problems in the UK may not simply be a matter of the Conservative Party failing to support the NHS. It appears that the model for funding healthcare in the UK is unsustainable, inefficient, and is in part responsible for the failure to address key problems. This does not mean that the system requires radical upheaval. This does not mean that transitioning to an insurance-based French model is the solution or even a possibility. And this certainly does not mean that privatisation is being recommended. It does, however, indicate that the UK should be open to understanding how funding sources could be adjusted and diversified. And this involves learning from a country that is a world leader in 3 the field. 1 Charlesworth, A. et al. (2018) Securing the future: funding health and social care to the 2030s, The Institute for Fiscal Studies. Retrieved from https://www.ifs.org.uk/uploads/R143_Chapter4.pdf 2 Charlesworth, A. et al. (2018) Securing the future: funding health and social care to the 2030s, The Institute for Fiscal Studies. (see earlier) 3 World Health Report 2000 (2000) Health Systems: Improving Performance, World Health Organisation. Retrieved from http://www.who.int/whr/2000/en/whr00_en.pdf Investigating what the UK can learn from the French model of healthcare funding • 2 Funding problems facing the UK The UK funding model The UK operates a tax-funded model that aims to pool risk across a large population base. While private medical insurance is available, just 11% of the UK population is covered in this way.4 And within this group, a much smaller proportion has comprehensive private insurance.5 Of the £125 billion raised for healthcare in England in 2017/18, just fewer than 80% came through taxation.6 Since 2003, National Insurance contributions have represented around 20% of the overall funding.7 Charges on dental treatment and prescriptions are also in place. In total, £1.6 billion was raised in patient charges in 2016/17.8 Insufficient funds The NHS is facing severe pressure from a growing and ageing population, expectations of modernisation, and increasing costs. Even without modernising the service, UK healthcare requires a considerable increase in funding. Estimates for a 'status quo' scenario suggest that an additional 1.6% of GDP is required by 2034.9 Factoring in desires for modest improvements in provisions, an additional 2.6% of GDP would be needed by 2034.10 This issue is accompanied by serious hospital deficits. The funding gap between patients' needs and NHS resources in 2014 was estimated to be £2.2 billion.11 NHS bodies ended the 2015/16 financial year with a £1.85 billion deficit.12 Although it is true that the Audit Office praised the NHS for the care that it offers, declines in performance in key areas were noted in the report.13 The funds raised were deemed insufficient to meet financing targets. The ability to meet key health targets depends on funding and the UK is failing to raise the necessary amount. The UK spends 9.8% of GDP on healthcare according to the latest ONS figures, above the OECD average.14 However, comparison by expenditure per capita in terms of purchasing power parity highlights the failures of the system. Measured using this method, the UK spent 15 $4,144.60 in 2015. This compares unfavourably with France ($4,542.31), Japan 4 Commission on the Future of Health and Social Care in England (2014) The UK private health market, The King's Fund. Retrieved from https://www.kingsfund.org.uk/sites/default/files/media/commission-appendix-uk-private-health-market.pdf 5 Commission on the Future of Health and Social Care in England (2014) The UK private health market, The King's Fund. (see earlier) 6 Rahman, G. (2018) 'How is the NHS funded?', Full Fact. Retrieved from https://fullfact.org/health/how-nhs-funded/ 7 Rahman, G. (2018) 'How is the NHS funded?', Full Fact. (see earlier) 8 Rahman, G. (2018) 'How is the NHS funded?', Full Fact. (see earlier) 9 Charlesworth, A. et al. (2018) Securing the future: funding health and social care to the 2030s, The Institute for Fiscal Studies. (see earlier) 10 Charlesworth, A. et al. (2018) Securing the future: funding health and social care to the 2030s, The Institute for Fiscal Studies. (see earlier) 11 Dolton, P. (2017) Is NHS Funding in Crisis?, National Institute of Economic and Social Research. Retrieved from https://www.niesr.ac.uk/sites/default/files/publications/NIESR%20Briefing%20Paper%20No5%20- %20Is%20NHS%20Funding%20In%20Crisis.pdf 12 Dolton, P. (2017) Is NHS Funding in Crisis?, National Institute of Economic and Social Research. (see earlier) 13 Dolton, P. (2017) Is NHS Funding in Crisis?, National Institute of Economic and Social Research. (see earlier) 14 Office for National Statistics (2018) 'UK Health Accounts: 2016'. Retrieved from https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthcaresystem/bulletins/ukhealthaccounts/201 6 15 World Bank (2015) 'Current health expenditure per capita, PPP (current international $)'. Retrieved from https://data.worldbank.org/indicator/SH.XPD.CHEX.PP.CD Civitas: Institute for the Study of Civil Society Investigating what the UK can learn from the French model of healthcare funding • 3 ($4,405.13) and the Netherlands ($5,313.24), as well as a number of other developed countries.16 Research suggests that the tax-based nature of the model is partly responsible for this low spending capacity. According to World Bank research, across 29 countries (16 insurance- funded; 13 tax-funded), insurance-based systems allowed 3-4% more spending than tax- based models.17 A further study suggests that this figure is 11%.18 The evidence suggests that, by virtue of the funding mechanism, fundraising is more effective when utilising insurance as the core source of finances. This may be explained by greater efficiency in collection, greater incentives to contribute, and greater hypothecation in the process of distribution. Unsustainable methods The NHS is taking an unsustainably large share of national income. Between 1950 and 2011, spending on the NHS grew by 4.04% per year.19 GDP, in this time period, grew by just 2.54%.20 If similar rates of change continued, the NHS would consume one-fifth of national income by the 2070s and half by 2135.21 This fiscal trend cannot continue. The income tax burden is also unsustainable, while hypothecation is insufficient. To achieve even the 'status quo' scenario of NHS development, all rates of income tax would have to increase by approximately 5p.22 And increasing tax rates does not guarantee that this extra revenue will be spent on health. A model that funds healthcare through taxation, filtered through the central budget without hypothecation, places distributive power into the hands of government. This links spending on healthcare not only to the decisions of the particular ruling party, but also to the state of the economy. Funding goes through periods of feast and famine, due to economic fluctuations and new governments adjusting their priorities. These combine to limit the reliability of the structure. Indeed, it is not necessarily the use of taxes as a funding source that hinders the system, but the predominance of unhypothecated taxation in the UK model. Current fiscal trends are linked to the connection of healthcare to the central budget. As new healthcare spending necessarily results in cuts to other departments, serious investment is difficult. The lack of diversity of financing sources in the UK healthcare structure severely restricts funding possibilities. A commitment to utilising just one source for the vast majority of funding increases administrative risks and is restrictive when attempting to raise funding capacity. 16 World Bank (2015) 'Current health expenditure per capita, PPP (current international $)'. (see earlier) 17 Wagstaff, A. (2009) Social Health Insurance vs. Tax-Financed Health Systems - Evidence from the OECD, World Bank. Retrieved from http://documents.worldbank.org/curated/en/545121468028868365/pdf/WPS4821.pdf 18 Wagstaff, A. and Moreno-Serra, R. (2008) Europe and Central Asia's Great Post-Communist Social Health Insurance Experiment: Impacts on Health Sector and Labor Market Outcomes, World Bank.